Islamic Mortgages in the UK 2024: Best Rates, Top Providers, and Alternatives

The Islamic mortgage in the UK market has evolved significantly over the past few years, making it an increasingly viable option for Muslim homebuyers seeking Sharia-compliant financing. As Islamic finance grows in popularity, so do the options for obtaining an Islamic mortgage in the UK. If you’re considering buying a property using an Islamic mortgage in 2024, it’s important to stay updated on the latest trends, rates, and providers. This article will walk you through the top players in the market, the current best rates, alternatives to Islamic mortgages, and my personal choice for financing a new home.

What is an Islamic Mortgage?

An Islamic mortgage, also known as a Home Purchase Plan (HPP), differs from conventional mortgages in that it adheres to Sharia principles. In a typical mortgage, you borrow money and repay it with interest, which is prohibited in Islam. Islamic mortgages are structured in a way that avoids interest, often through Murabaha (cost-plus sale), Ijara (leasing), or Musharaka (partnership).

The Islamic mortgage market is relatively small compared to the conventional mortgage sector, but it’s growing steadily. With more banks and financial institutions stepping into the market, there are increasing opportunities for Muslim homebuyers to secure halal financing.

The Main Providers of Islamic Mortgages in the UK

Currently, there are a few major players in the UK offering Islamic mortgages. These institutions follow Sharia principles and offer a variety of products tailored to Muslim homebuyers.

1. Gatehouse Bank: One of the leading names in the Islamic mortgage market, Gatehouse Bank has been offering Sharia-compliant products for several years. They deploy significant capital each month, writing tens of millions of pounds in Islamic mortgages. They offer various products, including fixed-rate and green mortgage options, which are becoming increasingly popular due to environmental concerns.
2. StrideUp: Another rising player in the Islamic mortgage market is StrideUp. Known for its innovative financing options, StrideUp focuses on shared ownership schemes, which allow homebuyers to gradually increase their stake in the property over time. This can be particularly appealing to first-time buyers who may not have a large deposit.
3. Al Ahli Bank of Kuwait: While not as well-known as Gatehouse or StrideUp, Al Ahli Bank primarily caters to overseas buyers from the Middle East looking to invest in properties in central London. Their focus is on high-net-worth individuals seeking premium properties.
4. Habib Bank AG Zurich: For more affluent buyers, Habib Bank AG Zurich offers Islamic mortgage products with a focus on commercial and buy-to-let properties. They are particularly active in the UK’s buy-to-let market, which continues to attract investors looking for Sharia-compliant financing.

While the number of providers might seem small, the landscape is changing. Al Rayan Bank, which has long been a significant player in Islamic finance, is expected to re-enter the mortgage market soon. In addition, several other banks and financial institutions are currently in the process of obtaining approval from the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) to offer Islamic mortgages. This increased competition will likely lead to more options and better rates for Muslim homebuyers in the UK.

Current Best Rates for Islamic Mortgages in the UK

When comparing Islamic mortgage rates, several factors come into play. These include the size of the deposit, the length of the mortgage term, and whether the buyer is a UK resident or an overseas investor. Mortgage rates can fluctuate depending on market conditions, so it’s important to stay informed.

To give you a sense of the market, here’s a comparison of the two-year fixed-rate products from Gatehouse Bank and StrideUp as of June 2024:

• Gatehouse Bank: 5.99% for an 80% Loan-to-Value (LTV)
• StrideUp: 6.59% for an 80% LTV

At present, Gatehouse Bank is offering a more competitive rate for a two-year fixed product. However, when it comes to five-year fixed-rate products, the difference between the two providers narrows:

• Gatehouse Bank: 5.95%
• StrideUp: 6.19%

While Gatehouse Bank’s rates are slightly lower, they have stricter criteria for their green mortgage products, which require a high Energy Performance Certificate (EPC) rating. Not all homes meet these requirements, so it’s worth considering whether your property qualifies.

Islamic mortgage rates can change from month to month, so it’s essential to regularly check mortgage comparison websites or visit the providers’ websites for the latest information. The good news is that with more players expected to enter the market, we could see even better rates and more options for homebuyers shortly.

Alternatives to Islamic Mortgages

While Islamic mortgages are the most well-known form of Sharia-compliant financing for homebuyers, several alternatives have emerged in recent years. These innovative products may offer a different path to homeownership, although they come with their challenges.

1. Pfida: Pfida is one of the newer entrants in the UK’s Sharia-compliant home financing market. While they offer Islamic home financing, they currently have a long waitlist due to high demand. If you’re looking to move quickly, Pfida may not be the best option for you.
2. Wayhome: Wayhome provides an innovative co-ownership model, where you gradually buy a stake in your home while paying rent on the portion you don’t own. However, they are not actively financing homes at the moment.
3. Yourhome: Yourhome offers a similar co-ownership model to Wayhome, but like Pfida, they have a limited number of homes they can finance each year, and buyers often face a waitlist.
4. Keyzy: Keyzy is one of the few alternative providers actively financing homes, but like the others, they face challenges with scaling due to capital constraints.

While these alternatives offer flexibility, they are often more expensive than traditional Islamic mortgages. Additionally, many of these products remain unregulated by the FCA, meaning that if something were to go wrong with the company, buyers would not have the same level of protection as they would with a regulated firm. This is an important consideration when deciding which financing option to pursue.

My Personal Choice for an Islamic Mortgage

As a homebuyer in my early thirties, I am looking for a Sharia-compliant mortgage that offers both affordability and reliability. With two young children and a full-time job, I don’t have the time to explore experimental products or wait for years on a waitlist. I need a mortgage provider that is established, regulated, and able to provide financing today.

Based on my research, I have narrowed my options down to Gatehouse Bank and StrideUp. Both providers offer competitive rates and have a solid track record in the Islamic mortgage market. My decision will likely come down to the specific rates available at the time of purchase and the terms of the mortgage.

While I appreciate the innovation behind some of the newer alternatives, my preference is for a regulated product that provides the oversight and protection that comes with FCA authorization. As someone with a regulated financial firm myself, I know the importance of this additional layer of security.

For those who are willing to take on a bit more risk, exploring some of the alternative options like Pfida or Keyzy could be worthwhile. However, in my situation, I prefer the stability of a tried-and-tested Islamic mortgage.

Final Thoughts on the Islamic Mortgage Market in the UK

The UK is quickly establishing itself as a hub for Islamic finance, particularly in the home financing sector. With the increasing cost of housing and the challenges many buyers face in getting on the property ladder, Islamic financial institutions could play a crucial role in helping more people achieve homeownership.

As more providers enter the Islamic mortgage market, competition will drive down rates and make Sharia-compliant home financing more accessible to a broader range of buyers. Whether you’re a first-time buyer, an investor, or someone looking to move up the property ladder, it’s an exciting time to explore your options for an Islamic mortgage in the UK.

If you’re considering buying a home, keep an eye on the latest developments in the market and regularly check mortgage comparison websites for the best rates. With more competition on the horizon, there’s a good chance that Sharia-compliant home finance schemes will become even more accessible in the coming years.

By staying informed and exploring all available options, you’ll be well-positioned to find the best Islamic mortgage in the UK that suits your financial needs and helps you achieve your homeownership goals.